Global Market News
Global Equities Decline
Global equities declined on the week, though smaller-cap, value, and non-US equities continued to outperform. The S&P 500 and Nasdaq decreased 0.44% and 0.95%, respectively, while the Dow Jones dropped 1.31%. The US 10-year Treasury note dropped 14 basis points from a week ago to close the week at 3.94% amid rising geopolitical and AI‑related economic fears. Meanwhile, the price of a barrel of West Texas Intermediate crude oil rose to end the week at $67.32. Volatility, as measured by the CBOE Volatility Index, was nearly even on the week, closing Friday at 19.86.
Hot PPI Report Rekindles Inflation Worries
US producer prices rose more than expected in January, driven largely by a surge in services costs and widening retailer and wholesaler margins linked to higher tariff‑related expenses. The 0.5% jump in the PPI—its biggest increase since September—signals lingering inflation pressure and prompted some economists to raise forecasts for core PCE. While gasoline and food declines pulled overall goods prices lower, core goods categories like machinery and metals saw strong gains. Following the report, the S&P 500 opened weaker, and Treasury yields moved lower as markets digested the hotter‑than‑expected inflation data.
International Developments
Diplomacy Collapses as U.S. and Israel Launch Strikes on Iran
U.S.–Iran nuclear negotiations this week in Geneva ended without a deal, but whatever diplomatic opening remained collapsed this morning as the United States and Israel launched major strikes across Iran. President Trump announced the operation in a video, vowing to destroy Iran’s military, dismantle its nuclear program, and force regime change as bombs hit central Tehran, including areas near the presidential palace and the supreme leader’s compound, plunging the city into chaos. Iran responded with waves of missiles aimed at Israel and U.S. bases across the region, and governments from the UAE to Iraq and Jordan reported intercepts or impacts as the conflict spread. The attack follows months of intensifying domestic unrest in Iran, failed last‑ditch nuclear talks, and escalating U.S. demands for sweeping nuclear rollbacks, leaving the region on the brink of a broader war.
Afghanistan-Pakistan Hostilities Escalate
Pakistan’s unprecedented airstrikes on Kabul, Kandahar and eastern Afghan provinces mark the most serious rupture yet between Islamabad and the Afghan Taliban, former allies whose relationship has deteriorated amid surging cross border militant violence. Pakistan says it targeted Taliban military infrastructure in response to attacks on Thursday night. Their focus is on the Afghani Taliban’s alleged tolerance of Tehreek e Taliban Pakistani fighters operating from Afghan soil. The Taliban denies the charge, claimed retaliatory strikes and has signaled openness to negotiations through Qatari mediation. Casualty figures from both sides remain disputed, but the strikes represent a shift from earlier operations against nonstate militants to direct attacks on the Taliban administration and raise the risk of a prolonged frontier conflict along the 2,600 kilometer border. The crisis underscores the paradox of Pakistan’s past support for the Afghan Taliban, the deep ties between Afghan and Pakistani militant networks, and the growing security dilemma for a nuclear armed Pakistan facing a guerrilla hardened neighbor that it once helped bring to power.
Mexico’s Hit on ‘El Mencho’ Cartel Leader
Mexico was thrust into one of its most volatile security crises in years after the killing of Jalisco New Generation Cartel leader Nemesio “El Mencho” Oseguera Cervantes, a U.S. and Mexican priority target. His death triggered coordinated arson, road blockades and nationwide disruption as cartel operatives demonstrated their reach. The operation, carried out by Mexican forces with intelligence cooperation from Washington, marks the most significant blow against organized crime since the recapture of El Chapo and is intended in part to show the Trump administration’s tangible progress against groups it has labeled terrorist organizations. The immediate backlash, which paralyzed cities including Guadalajara and spread across multiple states, highlights the persistent capacity of cartels to challenge state authority and intimidate civilians. With no clear successor to a leader who centralized control over a global trafficking network, the Jalisco cartel now faces a potential power struggle that could either weaken it against rivals or fragment into more indiscriminate violence. This is both a strategic victory for Mexico and the United States, but also a potential catalyst for a new phase of criminal conflict.
US Social & Political Developments
SCOTUS Checks Trump’s Tariff Authority
The U.S. Supreme Court delivered a major rebuke to President Trump’s trade strategy by ruling 6–3 that his use of emergency powers to impose sweeping global tariffs was illegal, reaffirming Congress’s constitutional authority over taxation and trade and potentially forcing the government to unwind more than $100 billion in collected duties. The decision, which united justices across ideological lines, punctures a central revenue source for the administration and throws existing trade deals and global market expectations into fresh uncertainty. Trump immediately moved to reimpose a 10 percent global tariff using different statutory powers. While the ruling curtails the broad flexibility he had under the emergency law, it does not eliminate alternative tariff tools, setting up a prolonged legal and economic battle over refunds, replacement measures, and the future scope of presidential trade authority. This episode underscores both the judiciary’s newfound willingness to check executive overreach and also the likelihood that U.S. tariff-driven pressure on allies and rivals alike will continue through narrower, more contested mechanisms.
Trump’s State of the Union Address
President Trump’s marathon State of the Union offered a campaign-style defense of his first year in office ahead of difficult midterm elections. His speech paired an upbeat portrayal of the economy and hard-line immigration policies with sharp attacks on Democrats and the Supreme Court. The address broke the record for the longest in history, but provided only a limited legislative agenda. He highlighted falling inflation, lower gas prices, reduced border crossings, and a historic drop in the murder rate, but independent fact checks showed many of the claims were overstated.The address largely sidestepped major foreign policy issues and the ongoing Russia-Ukraine war, leaned heavily on familiar cultural and immigration themes, and sought to energize his base rather than broaden his appeal at a time of low approval ratings and persistent voter concern over living costs. With partisan disruptions in the chamber and a Democratic response focused squarely on the economy, the speech reveals a politically polarized environment in which views of Trump are deeply entrenched and the policy debate centers less on new initiatives than on competing interpretations of economic performance and government power.
Corporate/Sector News
Anthropic-Pentagon Clash
A standoff between Anthropic and the Pentagon over the military use of advanced AI has escalated into a defining confrontation for the tech sector, as employees at Amazon, Google and Microsoft urge their companies to refuse defense contracts that could enable autonomous weapons or mass domestic surveillance, aligning with Anthropic’s insistence on strict guardrails. The Defense Department has threatened to cancel the company’s $200 million contract, label it a supply chain risk and potentially invoke the Defense Production Act to compel compliance, while rivals position themselves to take its place in classified work, underscoring the commercial and strategic stakes in the race to supply AI for national security. Yesterday, President Trump ordered all federal agencies to stop using Anthropic’s technology, calling for an immediate phase‑out of its products across the government, as President Trump, Defense Secretary Pete Hegseth, and other officials took to social media to chastise Anthropic for failing to allow the military unrestricted use of its AI technology by a Friday deadline. The dispute reflects a broader global reality in which AI is already being used in battlefield targeting even as international rules lag, the United States pushes rapid military adoption to compete with China and rejects global governance efforts, and internal dissent within Silicon Valley revives long-running ethical battles over the role of tech in warfare and state surveillance.
Paramount Clinches Warner as Netflix Steps Aside
Netflix’s decision to abandon its $83 billion bid for Warner Bros. Discovery clears the path for a likely takeover by David Ellison’s Paramount Skydance, marking a dramatic shift in the Hollywood power balance and underscoring both the financial discipline of the streaming giant and the rising influence of a tech-backed media consolidator. Warner’s board deemed Ellison’s $111 billion offer superior, and Netflix chose not to counter despite having the resources, a move that reassured investors wary of the company buying into a declining legacy television business and sent its shares sharply higher. The prospective merger would unite major film studios, HBO, CNN, and Paramount’s assets under Ellison, raising regulatory and editorial questions given his family’s ties to President Trump and the administration’s visible interest in the deal, while also highlighting how political considerations, antitrust scrutiny, and shifting economics in traditional media are reshaping consolidation across the entertainment industry.
AMD-Meta Deal Lifts AI Stocks
Meta’s agreement to purchase up to six gigawatts of AI computing power from AMD in a deal valued at more than $100 billion marks one of the largest infrastructure bets of the AI era. The social media giant is locking in long term chip supply while giving AMD a crucial foothold against Nvidia in the race to power hyper-scale data centers. The partnership includes customized MI450 processors optimized for AI inference and a warrant structure that could hand Meta as much as a 10 percent stake in AMD if performance targets are met, reflecting the growing use of equity-linked “circular” financing to secure customers and signal demand in a capital intensive market. For Meta, which plans to spend well over $100 billion annually on AI infrastructure and is simultaneously sourcing chips from multiple vendors and developing its own silicon, the deal is about diversifying supply and preventing bottlenecks to its AI ambitions. For AMD, it is both a major validation of its next-generation hardware and an indication of how fiercely chipmakers must compete for a small number of dominant buyers. More broadly, the transaction highlights deepening interdependence among top AI firms, investor unease over the scale and payback timeline of Big Tech spending, and the shift toward customized, energy-efficient processors as inference workloads become the largest segment of the AI hardware market.
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This week from BlackSummit
Hedging at the Intersection of Schrödinger’s Cat
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Video of the Week
Dispatches From Munich Security Conference with General David Petraeus
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